Fixed deposit Vs Stock investment. As an investor, you will always find yourself stuck with a very common question, “which investment alternative is better?” It is all right to have questions. You can have many of them if investing for the first time. Coming back to the debate, which is the best investment option? I would say, the answer depends on the investor. How? You are soon going to find out.
Today, we will compare two investment alternative, very popular among lower and middle-income populations: Fixed deposit and Stock Investment. These two are quite popular and the top choice for a majority of Indian population. Why? Lower investment capital requirement. An FD account can be started with a minimum of Rs 1000 in State Bank of India.
Coming back to the question, again. There are certain key factors that an investor needs to have a clarity on to know the right investment option for themselves. Read about them below.
Key factors to consider before investing:
- Purpose of investment: Everybody plans to invest, but not everyone can keep up with the pressure. This happens because they don’t have a stronger reason to hold on their investment. To be honest, investing money is a next level ball game. So, make sure you have a very strong purpose to invest because your patience will be thoroughly tested until your investment matures. You have to be very stiff about your decision, and not opt for premature closure at any cost. Now, if you finally have a clarity of the purpose, it would be easier to choose between fixed deposit and stock investment.
- Principle amount: The second thing you need to consider is the capital you want to invest. The size of your investment capital matters, affecting your earnings directly. In layman’s terms, higher investment capital garners higher interest and higher sum upon maturity. If your investment capital is low, a fixed deposit can be your thing. However, if your capital investment is high, you can invest in both fixed deposit and stocks.
- Expected capital returns: The size of returns will help you achieve more clarity on which is the better alternative for you. Generally, stock investment depends on the market conditions and may get you more than expected return on investment. However, nothing is fixed and it all depends on your luck, also on how patient you are. In case of a fixed deposit, you can calculate the final maturity amount before investing and later finalize your decision. Fixed deposit remain unaffected by the market fluctuation and the investor gets the exact sum which was assured to them at the time of investment. Also, the interest rate remains same to what was offered in the beginning.
- Investment risk: Risk and profit are the two brothers who rule this investment business. You can say that higher risk investment leads to better profits. As in case of stock investment, the risk factor is the highest, if compared to other investment alternatives. Therefore, the assured return is also higher, depending on market conditions. Talking about the fixed deposit, the risk involved is the lowest, thus, the profit is moderate. Moreover, you can invest in tax saver fixed deposit to gain tax-free money.
- Investment tenor: There are two categories of investment depending on tenor: Short-term and long-term investment. Short-term investment is suitable for emergency purposes, whereas, long-term investment is mostly regarded as retirement savings. The longer you invest for, the better returns you get. The logic applies in both case: Fixed deposit and Stock investment.
Bottom line: No investment is wrong, it all depends on you and the circumstances you are in. Also, I would suggest you do your maths and research work before applying for a fixed deposit or stock investment account.